VZCZCXRO4938
RR RUEHLH RUEHPW
DE RUEHIL #1734/01 1250527
ZNR UUUUU ZZH
R 040527Z MAY 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 6769
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4209
RUEHNE/AMEMBASSY NEW DELHI 3199
RUEHLO/AMEMBASSY LONDON 7822
RUEHML/AMEMBASSY MANILA 2988
RUEHKP/AMCONSUL KARACHI 9651
RUEHLH/AMCONSUL LAHORE 5400
RUEHPW/AMCONSUL PESHAWAR 4137
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 04 ISLAMABAD 001734 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENGY EFIN ECON EINV PREL PK
SUBJECT: NAVIGATING THE MAZE OF PAKISTANI ENERGY POLICY- PART THREE 
 
REFS: A) Islamabad 00655 B) Islamabad 00810 C) Islamabad 00921 D) 
Islamabad 01420 E) Karachi 199 F) Islamabad 01623 G) Islamabad 1701 
 
¶1. (U) Please see Action Request in paragraph 28. 
 
¶2. (SBU) SUMMARY.  Concluding the three part roadmap of agencies 
involved in Pakistan's energy policy, this cable outlines the 
involvement of the Prime Minister's Secretariat, four additional 
Cabinet level Ministries, and five other regulatory agencies.  The 
U.S. has an opportunity to engage in diplomatic efforts which can 
help shape the energy policy of Pakistan and streamline its 
institutional framework, thereby transforming the energy sector and 
improving the lives of millions of average Pakistani citizens. 
Investment opportunities for American companies are abundant and 
should be promoted.  Continuing discussions under the bilateral 
Energy Dialogue could be the first step in helping Pakistan address 
these energy issues and Post renews requests for a date to be set 
for the next discussion. END SUMMARY. 
 
¶3. (SBU) This is the third piece of a three part cable review of the 
haphazard mix of the institutions which comprise the energy policy 
making sector of Pakistan.  A lack of coordination and absence of 
any clear line of authority hampers any formulation of policy 
efforts to address the current energy crisis in Pakistan.  This 
cable is the seventh in a series of cables on Pakistan's energy 
sector. 
 
¶4. (SBU) Part one explained the Ministry of Water and Power and its 
19 subordinate agencies.  Part two in "Navigating the Energy Maze" 
addressed the Ministry of Petroleum and National Resources and its 
16 subordinate agencies.  Part three addresses the other 4 
Ministries and 7 subordinate agencies involved in various levels of 
the GOP policy process. 
 
-------------------- 
PRIME MINISTER LEVEL 
-------------------- 
 
-------------------- 
Task Force on Energy 
-------------------- 
 
¶5.  (SBU) In November 2007 interim Prime Minister Soomro formed an 
Energy Task Force to coordinate, plan and recommend measures for 
Pakistan to deal with the current energy crisis.  The task force is 
headed by the Deputy Chairman of the Planning Commission and members 
include the Secretary of the Ministry of Petroleum and Natural 
Resources, the Secretary of the Ministry of Water and Power, the 
Chairman of the Federal Board of Revenue and the Member of the 
Planning Commission for Energy. The Task Force has recommended that 
the Government develop plans to generate 20,000 MW electricity from 
Thar Coal reserves in Balochistan by 2020.  The Task Force also 
recommended that President Musharraf seek Chinese assistance on the 
development of the Thar coal fields during his April 2008 state 
visit to Beijing. 
 
¶6.  (SBU) Following the February 2008 elections, a new cabinet has 
been sworn into office and it is unclear whether the Task Force on 
Energy will continue to exist under the new Government. 
 
-------------------------------------------- 
Special Energy Advisor to the Prime Minister 
-------------------------------------------- 
 
¶7.  (SBU) Former Prime Minister Aziz created the position of Special 
Advisor to the Prime Minster for Energy.  With an office in the 
Prime Minister's wing and reporting directly to Prime Minister Aziz, 
this position was created to oversea the myriad of institutional 
bodies and policies involved in energy.  While serving as a member 
of almost all energy-related Board of Directors for both the private 
and public sector, this one man show was the driving force, or lack 
thereof, for Pakistan's energy security efforts in the last five 
years and also led the GOP efforts in the US-Pakistan Energy 
Dialogue.  The position was vacant under the caretaker government 
and it is unclear whether this Advisor on Energy position will 
continue to exist under the new Government. 
 
--------------------------------------------- --------- 
VARIOUS OTHER MINISTRIES AND DEPARTMENTS INVOLVED WITH PAKISTAN'S 
 
ISLAMABAD 00001734  002 OF 004 
 
 
ENERGY SECTOR 
--------------------------------------------- --------- 
 
¶8.  (SBU) In addition to the Ministry of Water and Power and the 
Ministry of Petroleum and Natural Resources, there are four 
additional ministries which are involved in formulating and 
approving energy policy decisions. 
 
------------------------ 
The Planning Commission 
------------------------ 
 
¶9.  (SBU) While the Prime Minister serves as the Chairman of the 
Planning Commission, this Ministry is essentially run by the Deputy 
Chairman who is assisted by nine members including the Secretary of 
the Planning Commission, the Chief Economist, the Director of 
Pakistan's Institute of Development Economics, the Executive 
Director of Implementation and Monitoring, and Members for Social 
Sectors, Science and Technology, Energy, Infrastructure, and Food 
and Agriculture. (Comment: While the Pakistani system used the term 
"member" these officials are essentially the chief technocrats at 
the level of Additional Secretaries. End Comment.) 
 
¶10.  (SBU) Within the Planning Commission, an Energy Wing is headed 
by the Member for Energy and Infrastructure.  The Commission drafted 
a Medium Term Development Framework (2005-10) with a detailed Energy 
Security Plan, analyzing the present energy crisis and making 
projections for the future with specific development targets.  As of 
March 2008, essentially all of these projects have fallen 
drastically behind schedule, despite active participation by the 
Planning Commission on various boards of directors for most of the 
power sector entities. 
 
----------------------- 
Ministry of Environment 
----------------------- 
 
¶11.  (SBU) The Ministry of Environment is headed by a Minister with 
a Federal Secretary running the administrative functions.  It is 
composed of five functional wings: Administration, Development, 
Environment, International Cooperation and Forestry.  Overlap occurs 
due to the Ministry's control over specialized departments such as 
the Energy Conservation Center (ENERCON), the Pakistan Forest 
Institute, National Council for Conservation of Wildlife (NCCW) and 
Zoological Survey Department (ZSD). 
 
¶12.  (SBU) In addition to the implementation of the National 
Environment Policy, the Ministry also handles environmental 
assessments and "no objection certifications" for power plant 
operations.  Power projects in both the public and private sector 
are required to submit an Environmental Impact Assessment Report to 
both the Provincial Environmental Protection Agencies and the 
Ministry. 
 
¶13.  (SBU) Established in 1987, ENERCON serves as the national focal 
point for energy conservation and energy efficiency activities. 
ENERCON is mandated to increase the supply of energy by reducing 
energy waste and improving efficiency, diversify the national 
dependency on imported crude oil and refined petroleum products, and 
promote clean energy technologies such as renewable energy. 
 
¶14.  (SBU) ENERCON is headed by a Managing Director and has a total 
of 14 employees.  This former USAID-funded project has drafted a 
National Policy on Energy Conservation which has been approved by 
the GOP.  An Action Plan to implement the National Energy 
Conservation Policy is now being formulated which will include 
setting codes and standards for various energy consuming equipment. 
 
---------------------------------------- 
Ministry of Privatization and Investment 
---------------------------------------- 
 
¶15.  (SBU) With Cabinet approval, the Privatization Commission (PC) 
is entrusted with selling federal government property, such as GOP 
shares in banks, industrial units, public utilities, oil and gas 
companies, transport companies and infrastructure service providers 
in an open and transparent manner.  Within the overall GOP policy to 
strengthen the private sector's role in the power supply, the 
Ministry also makes independent recommendations on energy policies 
 
ISLAMABAD 00001734  003 OF 004 
 
 
to attract foreign direct investment into Pakistan.  In addition to 
the sale of shares or assets, the Ministry may also offer 
concessions or the right to operate publicly owned assets.  It is 
headed by a political Minister, and had Cabinet status under the 
previous government. 
 
------------------- 
Ministry of Finance 
------------------- 
 
¶16.  (SBU) The Ministry of Finance (MOF) controls the purse strings 
for all public sector projects, including power projects.  In 
addition, the MOF has financial advisors attached to each ministry 
to maintain financial discipline.  Funds are released to the public 
sector power plants through the Ministry of Finance upon 
recommendations of the Planning Commission.  The MOF also works with 
the private sector to promote public/private partnership in capital 
intensive infrastructure projects. 
 
¶17.  (SBU) In most private sector projects, the GOP extends project 
loans through a state company called the National Development 
Finance Corporation (NDFC), the largest development finance 
institution in Pakistan.  NDFC provides financing to both public and 
private sector industrial enterprises through its own deposits, 
lines of credit from the State Bank of Pakistan and multilateral 
credit agencies. 
 
------------------------------------ 
INDEPENDENT REGULATORY ORGANIZATIONS 
------------------------------------ 
 
¶18.  (SBU) There are three independent regulatory agencies which 
merit mention. 
 
--------------------------------------------- -------- 
National Electric Power Regulatory Authority (NEPRA): 
--------------------------------------------- -------- 
 
¶19.  (SBU) In December 1997 the GOP established an autonomous 
regulatory body, under the administrative control of the Cabinet, to 
improve the efficiency and availability of electric power services. 
The Prime Minister appoints a Chairman for a four year term to lead 
NEPRA as well as Members to represent each of the four provinces. 
With only 160 employees, NEPRA is responsible for the issuance of 
licenses for the generation, transmission and distribution of 
electric power; establishment and enforcement of standards to ensure 
quality and operational safety and ensuring a consistent supply of 
electric power to consumers; approval of investment and power 
acquisition programs; and determination of all tariffs.  By law, 
NEPRA is required to hold public hearings on the proposed tariffs to 
ensure transparency for investors and customers. 
 
¶20.  (SBU) NEPRA's inadequate and unqualified staff would make it 
difficult to accomplish its mandate under any circumstances. 
However, the tariff set by NEPRA is often rejected and altered 
before being ratified by the government.  Fearing popular fall-out, 
the government attempts to reduce the impact on customers and pays 
the difference between the actual cost of energy and the domestic 
charge as a "direct subsidy" to the utility.  Most of these payments 
actually end up as receivables to WAPDA, which in turn reduces 
payments to the independent power producers and thus to Pakistan 
State Oil for fuel supplies.  The two largest account receivables 
owed to the distribution companies are from the Karachi Electric 
Supply Company (reftel E) and the Pakistan Army. 
 
--------------------------------- 
Pakistan Atomic Energy Commission 
---------------------------------- 
 
¶21.  (SBU) Under the purview of the Prime Minister's Secretariat, 
the Pakistan Atomic Energy Commission (PAEC) is responsible for 
implementation of the national nuclear power program.  Currently two 
nuclear power plants are operational - the 135 MW Karachi Nuclear 
Power Plant (KANUPP) and the 325 MW Chashma Nuclear Power Plant 
(CHASNUPP).  A third plant, CHASNUPP unit 2, is under construction 
and will be completed in 2011.  The GOP has set a target of 8,800 MW 
of nuclear power capacity by 2030. 
 
¶22.  (SBU) PAEC management consists of federally appointed members 
 
ISLAMABAD 00001734  004 OF 004 
 
 
from government and scientific fields. It meets four times per year 
to deal with all atomic issues including research work, promotion of 
peaceful uses of atomic energy in the fields of agriculture, 
medicine and industry, and the development of nuclear power 
generation projects. 
 
------------------------------------- 
Sarhad Hydel Development Organization 
-------------------------------------- 
 
¶23.  (SBU) Longstanding conflicts between provincial and federal 
rights over hydropower potential led to the establishment of the 
Sarhad Hydel Development Organization (SHYDO).  As an autonomous 
body mandated to explore and develop the hydropower potential in the 
North West Frontier Province (NWFP), SHYDO conducts feasibility 
studies for hydropower generation in the province and regulates 
private sector investment in hydropower projects. 
 
¶24.  (SBU) An eight member Board of Directors under the chairmanship 
of the NWFP Governor governs SHYDO.  Board members include 
provincial policy makers including the Ministers and Secretaries for 
Power and Finance, the NWFP Additional Secretary, the Secretary of 
Law and the SHYDO Managing Director.  SHYDO's head office is in 
Peshawar with field offices in Chitral, Dir, Swat and Kohistan. 
 
-------- 
Comment 
-------- 
 
¶25.  (SBU) Comment:  With a total of six Ministries and 42 agencies 
involved, there is an obvious need to reassess the usefulness of 
these organizations and eliminate duplication of responsibilities. 
Pakistan's electricity supply has almost always lagged behind 
demand.  Unfortunately, the demand for electricity was not a 
priority of the previous government until it was too late to 
increase supply to even remotely keep up with demand. 
 
¶26.  (SBU) Comment continued:  While many proposals exist for 
creating new power generation, turf wars for operational control 
among the Ministries and agencies have seriously slowed or 
completely halted the approval processes.  High level decisions have 
been further complicated by the capital intensive nature of big 
infrastructure projects, concerns over political backlash between 
provinces, officials' not unreasonable fears of being second guessed 
and accused of large scale corruption by subsequent governments and 
the long term nature of power projects to achieve tangible results. 
Timely decisions were not taken to utilize all available resources 
and no agency or ministry has the lead on implementing the National 
Energy Strategy. 
 
¶27.  (SBU) Comment continued:  The good news is that the new 
coalition government is making energy policy and dealing with the 
current energy shortfalls a priority.  When the Pakistan Peoples 
Party (PPP) was last in power, Pakistan had a track record of 
encouraging domestic and foreign investment in its energy sector. 
The last additions to the national grid were completed in 2000, a 
result of projects implemented by former Prime Minister Benazir 
Bhutto in 1994.  No additional mega-watts have been added to the 
national grid since 2000.  With the public outcry increasing, the 
new government will need to make some quick decisions to begin 
addressing the long term energy problems, but shortfalls will 
continue in the immediate future.  The lack of new generation 
capacity will continue to dampen prospects for economic growth for 
years to come. 
 
¶28.  (SBU) Comment continued: The U.S. has an opportunity to engage 
in diplomatic efforts which can help shape the energy policy of 
Pakistan and improve the lives of millions of average Pakistani 
citizens.  Efforts to help Pakistan streamline its institutional 
framework and policy process could transform the energy sector. 
Investment opportunities for American companies are abundant and 
should be promoted.  Continuing discussions under the bilateral 
Energy Dialogue could be the first step in helping Pakistan address 
these energy issues and Post renews requests for a date to be set 
for the next discussion.  End Comment. 
 
PATTERSON